SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities Act of
1934 for the quarterly period ended September 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act for the transition period from _______ to _______.
Commission file number 1-6505
SIGNET BANKING CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-6037910
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 NORTH EIGHTH STREET, RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 804 747-2000
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Common Shares outstanding as of October 31, 1995 - 59,065,140
<PAGE>
Index
SIGNET BANKING CORPORATION AND SUBSIDIARIES
September 30, 1995
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Statement of Consolidated Income 4
Statement of Changes in Consolidated
Stockholders' Equity 5
Statement of Consolidated Cash Flows 6
Supplemental Notes to Quarterly
Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 28
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Signet Banking Corporation
Consolidated Balance Sheet
(in thousands-except per share) (unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994 1994
<S> <C> <C> <C>
Assets
Cash and due from banks $ 498,193 $ 453,020 $ 531,747
Interest bearing deposits with other banks 1,712 239,274 355,795
Federal funds sold and securities purchased under resale agreements 425,305 1,090,348 1,135,821
Trading account securities 464,950 279,245 353,040
Loans held for securitization 750,000 151,198
Loans held for sale 267,535 128,613 69,506
Securities available for sale 2,195,180 1,113,371 1,241,696
Investment securities 297,237 203,021 398,783
Loans:
Consumer 1,776,434 3,409,732 4,612,633
Commercial 2,982,401 2,282,334 2,472,620
Real estate - construction 237,271 218,500 209,183
Real estate - commercial mortgage 406,102 532,391 526,956
Real estate - residential mortgage 248,145 133,084 191,508
Gross loans 5,650,353 6,576,041 8,012,900
Less: Unearned income (140,916) (64,886) (88,723)
Allowance for loan losses (129,672) (225,359) (220,519)
Net loans 5,379,765 6,285,796 7,703,658
Premises and equipment (net) 180,549 253,791 258,715
Interest receivable 98,000 80,491 98,557
Other assets 534,689 767,065 783,911
Total assets (Capital One Financial Corporation amounted
to $0, $2,246,106 and $3,072,546, respectively) $ 11,093,115 $ 11,045,233 $ 12,931,229
Liabilities
Non-interest bearing deposits $ 1,603,922 $ 1,592,825 $ 1,542,349
Interest bearing deposits:
Money market and interest checking 1,064,412 1,011,484 1,050,176
Money market savings 1,337,665 1,500,611 1,453,629
Savings accounts 1,338,824 1,095,370 1,170,990
Savings certificates 1,828,217 2,039,352 1,952,090
Large denomination certificates 99,890 216,428 643,054
Foreign 80,318 195,010 9,225
Total interest bearing deposits 5,749,326 6,058,255 6,279,164
Total deposits 7,353,248 7,651,080 7,821,513
Securities sold under repurchase agreements 1,153,479 904,723 875,458
Federal funds purchased 1,285,918 610,081 881,693
Commercial paper 118,928 108,664
Other short-term borrowings 160,221 1,446,955
Long-term borrowings 253,129 253,729 253,641
Interest payable 23,455 28,036 31,078
Other liabilities 181,514 235,349 400,748
Total liabilities 10,250,743 9,962,147 11,819,750
Stockholders' Equity
Common Stock, $5 par value; Authorized 100,000,000 shares,
issued and outstanding 59,048,852, 58,477,850 and
58,636,759 shares, respectively 295,244 292,389 293,184
Capital Surplus 197,911 195,704 198,869
Retained Earnings 349,217 594,993 619,426
Total stockholders' equity 842,372 1,083,086 1,111,479
Total liabilities and stockholders' equity $ 11,093,115 $ 11,045,233 $ 12,931,229
</TABLE>
<PAGE>
Signet Banking Corporation
Statement of Consolidated Income
(in thousands-except per share) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Interest income:
Loans, including fees:
Consumer $ 60,296 $ 82,777 $ 239,998 $ 238,763
Commercial 53,703 40,539 150,426 120,858
Real estate - construction 6,080 5,298 16,860 15,774
Real estate - commercial mortgage 9,358 12,707 32,765 34,869
Real estate - residential mortgage 5,011 1,917 14,364 5,247
Total loans, including fees 134,448 143,238 454,413 415,511
Interest bearing deposits with other banks 127 2,851 1,923 8,374
Federal funds sold and resale agreements 7,166 11,602 30,707 25,226
Trading account securities 7,410 5,062 23,064 15,449
Loans held for securitization 11,561 13,181 22,186 38,904
Loans held for sale 7,785 2,270 15,122 11,146
Securities available for sale 31,963 15,949 91,042 56,185
Investment securities - taxable 4,190 311 12,393 1,003
Investment securities - nontaxable 2,093 3,758 8,160 12,284
Total interest income 206,743 198,222 659,010 584,082
Interest expense:
Money market and interest checking 6,794 5,842 19,874 16,999
Money market savings 11,873 10,918 35,535 33,617
Savings accounts 12,785 8,656 35,312 23,355
Savings certificates 22,070 14,820 59,964 41,863
Large denomination certificates 1,332 3,115 10,218 9,974
Foreign 1,721 2,385 5,209 6,678
Total interest on deposits 56,575 45,736 166,112 132,486
Securities sold under repurchase agreements 14,689 9,342 40,396 27,617
Federal funds purchased 14,211 5,540 38,348 19,002
Other short-term borrowings 3,751 15,302 10,949
Long-term borrowings 4,324 4,131 21,213 12,180
Total interest expense 89,799 68,500 281,371 202,234
Net interest income 116,944 129,722 377,639 381,848
Provision for loan losses 8,681 3,000 20,111 11,498
Net interest income after provision for loan losses 108,263 126,722 357,528 370,350
Non-interest income:
Credit card servicing and service charge income 2,511 108,685 87,921 296,705
Service charges on deposit accounts 17,732 16,234 51,415 50,037
Trust income 6,430 4,747 16,534 14,417
Other 19,690 21,992 53,943 55,299
Non-interest operating income 46,363 151,658 209,813 416,458
Securities available for sale gains 166 140 512 3,193
Investment securities gains (losses) 565 22 823 (1)
Total non-interest income 47,094 151,820 211,148 419,650
Non-interest expense:
Salaries 45,792 68,028 147,161 192,314
Employee benefits 10,517 17,354 40,934 53,405
Supplies and equipment 9,384 13,502 32,625 38,596
Occupancy 9,635 13,038 31,023 34,604
Credit card solicitation 24,200 29,050 69,837
Travel and communications 6,138 14,499 24,895 41,362
External data processing services 6,868 13,049 22,662 36,456
Contract termination 49,000 49,000
Restructuring charge 33,619 33,619
Other 21,173 30,525 83,527 86,355
Total non-interest expense 109,507 276,814 411,877 635,548
Income before income taxes (Capital One Financial Corporation
amounted to $0, $(1,529), $27,407 and $105,751, respectively) 45,850 1,728 156,799 154,452
Applicable income taxes (benefit) 15,707 (1,734) 54,745 47,492
Net income $ 30,143 $ 3,462 $ 102,054 $ 106,960
Earnings per common share $ 0.50 $ 0.05 $ 1.71 $ 1.86
Cash dividends declared per share 0.17 0.25 0.59 0.75
Average common shares outstanding 60,146 57,898 59,691 57,504
</TABLE>
<PAGE>
Signet Banking Corporation
Statement of Changes in Consolidated Stockholders' Equity
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
<S> <C> <C> <C>
Nine Months Ended September 30, 1995
Balance at beginning of period $ 293,184 $ 198,869 $ 619,426
Net income 102,054
Issuance of Common Stock 3,352 6,249
Purchase of Common Stock (1,292) (7,207)
Cash dividends (34,661)
Spin-off of Capital One Financial Corporation (383,200)
Change in net unrealized gains on securities
available for sale, net of tax of $24,553 45,598
Balance at end of period $ 295,244 $ 197,911 $ 349,217
Nine Months Ended September 30, 1994
Balance at beginning of period $ 283,043 $ 133,038 $ 548,581
Adjustment to beginning balance for change in
accounting method for net unrealized gain on
securities available for sale, net of tax of $16,147 29,987
Net income 106,960
Issuance of Common Stock
Related to acquisition 7,571 51,714
Other 1,775 10,952
Cash dividends (42,582)
Change in net unrealized losses on securities
available for sale, net of tax benefit of $25,821 (47,953)
Balance at end of period $ 292,389 $ 195,704 $ 594,993
</TABLE>
5
<PAGE>
Signet Banking Corporation
Statement of Consolidated Cash Flows
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1995 1994
<S> <C> <C>
Operating Activities
Net income $ 102,054 $ 106,960
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Provision for loan losses 20,111 11,498
Provision and writedowns on foreclosed property 2,040 1,414
Depreciation and amortization 23,251 32,328
Investment securities (gains) losses (823) 1
Securities available for sale gains (512) (3,193)
Decrease in interest receivable 557 3,627
Increase in other assets (381,345) (183,179)
Increase (decrease) in interest payable 13,794 (169)
(Decrease) increase in other liabilities (16,119) 90,886
Proceeds from securitization of credit card loans 184,900 1,843,936
Proceeds from sales of loans held for sale 29,325,216 18,438,000
Purchases and originations of loans held for sale (29,708,145) (19,989,188)
Proceeds from sales of trading account securities 12,082,168 11,306,019
Purchases of trading account securities (12,194,078) (11,205,626)
Net cash used by operating activities (546,931) 453,314
Investing Activities
Proceeds from maturities of investment securities 115,279 50,137
Purchases of investment securities (25,510) (102)
Proceeds from sales of securities available for sale 494,445 1,361,970
Proceeds from maturities of securities available for sale 626,389 2,241,243
Purchases of securities available for sale (2,425,232) (2,967,120)
Net increase in loans (993,038) (415,690)
Recoveries of loans previously charged-off 8,266 24,196
Purchases of premises and equipment (53,266) (61,031)
Net cash (used) provided by investing activities (2,252,667) 233,603
Financing Activities
Net increase (decrease) in deposits 154,633 (169,533)
Net increase (decrease) in short-term borrowings 192,730 (831,175)
Increase in Capital One Financial Corporation long-term debt 1,388,153
Net decrease in other long-term debt (512) (12,422)
Net issuance of common stock 1,102 72,012
Payment of cash dividends (34,661) (42,582)
Net cash provided (used) by financing activities 1,701,445 (983,700)
Decrease in cash and cash equivalents (1,098,153) (296,783)
Cash and cash equivalents at beginning of period 2,023,363 2,079,424
Cash and cash equivalents at end of period $ 925,210 $ 1,782,641
Supplemental disclosures
Interest paid $ 288,993 $ 202,404
Income taxes paid 21,436 46,754
Transfer of loans to foreclosed property 2,446 7,950
Transfer of loans to loans held for securitization 900,000 2,000,000
</TABLE>
<PAGE>
Supplemental Notes to Quarterly Financial Statements
(dollars in thousands) (unaudited)
General
The accompanying financial statements (unaudited) reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation. All such
adjustments are of a normal recurring nature. The financial statements have been
prepared based on the accounting policies as described in the 1994 annual report
and as noted below, except certain amounts which have been reclassified for
prior periods to conform to the 1995 presentation format.
Statement of Consolidated Cash Flows
Cash and cash equivalents, as presented in this statement, includes cash and due
from banks, interest bearing deposits with other banks and federal funds sold
and securities purchased under resale agreements. A significant noncash
transaction in the first quarter of 1995 included a transfer of $3,639,288 of
assets (primarily $2,538,554 of loans), $3,256,088 of liabilities (primarily $
1,388,153 related to long-term borrowings) and a decrease in retained earnings
of $383,200 related to the spin-off of Capital One.
Securities Available for Sale
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
September 30,1995 September 30, 1994 December 31, 1994
Cost Fair Value Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency obligations -
Mortgage-backed securities $1,135,678 $1,173,564 $ 608,709 $ 590,488 $ 633,338 $ 607,003
Other 912,132 920,609 398,264 397,174 461,140 457,877
States and political subdivisions 111 119 14,24 214,618 110 116
Other 112,885 100,888 119,796 111,091 184,703 176,700
Total $2,160,806 $2,195,180 $1,141,011 $1,113,371 $1,279,291 $1,241,696
</TABLE>
Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994 December 31, 1994
Cost Fair Value Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency obligations -
Mortgage-backed securities $ 71,393 $ 72,914 $ 75,174 $ 73,307
Other 74,679 75,547 74,550 72,656
State and political subdivisions 89,772 92,444 $182,951 $190,923 173,571 179,467
Other 61,393 62,427 20,070 20,070 75,488 74,236
Total $297,237 $303,332 $203,021 $210,993 $398,783 $399,666
</TABLE>
Income Taxes
Differences between the effective rate of income taxes and the statutory rate
arise principally from non-taxable interest on investments and loans.
Securitizations
The Company securitized $185,000 of credit card receivables in the first nine
months of 1995 and $2,398,801 of credit card receivables in 1994. These
transactions were recorded as sales in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse." In conjunction with the spin-off of Capital One,
Signet Bank/Virginia's rights and obligations under the majority of its
securitization agreements entered into prior to November 22, 1994 as well as any
related assets and liabilities were transferred to Capital One Bank on November
22, 1994. Receivables outstanding under Signet's remaining securitizations
amounted to $290,833 at September 30, 1995. Proceeds from the sales in the first
nine months of 1995 and 1994 totaled $184,900 and $2,393,93 6, respectively.
Recourse obligations related to these transactions are not material. Excess
servicing fees related to the securitizations are recorded over the life of each
sale transaction. The excess servicing fee is based upon the difference between
finance charges received from the cardholders less the yield paid to investors,
credit losses and a normal servicing fee, which is also retained by Signet. In
accordance with the sale agreements, a fixed amount of excess servicing fees are
set aside to absorb credit losses. The amount available to absorb credit losses
is included in other assets and was $17,500 at September 30, 1995.
Recent Accounting Statements
Beginning in 1995, Signet adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." In accordance with SFAS No.
114, impaired loans are measured and reported based on the present value of
expected cash flows discounted at the loan's effective intere st rate, or at the
fair value of the loan's collateral if the loan is collateral dependent.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. A valuation allowance is required to the extent that the measure
of impaired loans is less than the recorded investment.
SFAS No. 114 does not apply to large groups of homogeneous loans such as
consumer installment and bank card loans, which are collectively evaluated for
impairment. Smaller balance populations of commercial loans are also excluded
from the application of the Statement. At September 30, 1995, Signet's loans
that are considered to be impaired under SFAS No. 114 are comprised of $33.7
million of non-accrual loans for which the related allowance for credit losses
is $9.8 million. The average recorded investment in impaired loans during the
nine months ended September 30, 1995 was approximately $28.6 million. Collateral
dependent loans, which were measured at the fair value of the loan's collateral
made up the majority of impaired loans at September 30, 1995.
SFAS No. 118 allows a creditor to use existing methods for recognizing interest
income on impaired loans. Interest receipts on impaired loans are applied in a
manner consistent with Signet's policy for non-accrual loans. For the nine
months ended September 30, 1995, no interest income was recorded on non-accrual
loans. All interest receipts on impaired loans were applied to the principal.
During the third quarter of 1995, the Company elected to adopt SFAS No. 122,
"Accounting for Mortgage Servicing Rights." In accordance with the Statement,
the cost of mortgage loans purchased or originated, with a definitive plan to
sell the loans and retain the mortgage servicing rights, is allocated between
the loans and the servicing rights based on their estimated fair values at the
purchase or origination date. The estimated fair value of mortgage servicing
rights is determined based upon quoted market prices for similar assets, if
available, or the results of valuation techniques such as the present value of
future cash flows using an appropriate discount rate. In determining the
estimated fair value of mortgage servicing rights, Signet utilizes a discounted
cash flow model which incorporates assumptions such as prepayment speeds of the
underlying loans, default rates, servicing income, servicing costs, and
inflation factors.
For the purpose of evaluating and measuring impairment of capitalized mortgage
servicing rights, SFAS No. 122 requires that such rights be stratified based on
one or more of the predominant risk characteristics of the underlying loans. For
Signet, these characteristics include loan type, term, and interest rate. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights in each stratum exceed their fair value and is recorded through
a valuation allowance. Subsequent to the initial measurement of impairment, the
valuation allowance should be adjusted to reflect changes in the measurement of
impairment. Fair value in excess of the amount capitalized net of amortization
is, however, not recognized. The initial adoption of these impairment provisions
did not require Signet to record a valuation allowance for any of its
capitalized mortgage servicing rights, including servicing rights that had been
purchased prior to the adoption of the SFAS No. 122.
The effect of adopting SFAS No. 122 on the Company's consolidated financial
statements was an increase in pre-tax income of approximately $3.7 million (net
of amortization) with a corresponding increase in mortgage servicing rights. The
additional income resulted from a lower adjusted cost basis of originated
mortgage loans sold with servicing retained. In addition to the servicing rights
capitalized on originated mortgage servicing rights, Signet capitalized $15.1
million of purchased mortgage servicing rights in the first nine months of 1995.
Amortization expense related to all capitalized mortgage servicing rights was
$3.6 million for the first nine months of 1995.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued in March 1995. The Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
determining the recoverability of an asset, the enterprise should estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the undiscounted cash flows is less than the carrying
amount of the asset, an impairment loss would be recognized. The Statement also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less
selling costs. The Statement is effective for fiscal years beginning after
December 15, 1995. Earlier adoption is encouraged. The effect of adopting SFAS
No. 121, which is expected to occur on January 1, 1996, is not expected to have
a material impact on the financial statements of the Company.
Capital One Financial Corporation ("Capital One")
On July 27, 1994, Signet Banking Corporation ("Signet") announced plans to
spin-off substantially all of its credit card business. Under such plans,
designated assets and liabilities of Signet Bank/Virginia's ("SBV") credit card
division were transferred to Capital One Bank, a newly chartered limited purpose
credit card bank. Capital One Bank became, in conjunction with the transfer, a
wholly-owned subsidiary of Capital One, a wholly-owned subsidiary of Signet (the
"Separation"). Accounts representing approximately $335 million, or 5%, of the
managed credit card portfolio were retained by Signet. The Separation occurred
November 22, 1994, at which time 7,125,000 shares of common stock of Capital One
were sold in an initial public offering. On February 28, 1995, Signet
distributed all of the common stock it held in Capital One to Signet
stockholders in a tax free distribution. Included in Signet's 1995 non-interest
expense is $2,018 of minority interest in Capital One's earnings.
Subsequent to February 28, 1995, Capital One's results of operations and
financial position are excluded from Signet's.
Capital One summary financial data follows:
<TABLE>
<CAPTION>
February 28, 1995 September 30, 1994 December 31, 1994
<S> <C> <C> <C>
Total assets $3,639,288 $2,246,106 $3,072,546
Total stockholders'/division equity 492,872 240,195 474,557
</TABLE>
<TABLE>
<CAPTION>
Two Months Ended Three Months Ended Nine Months Ended
February 28, 1995 September 30, 1994 September 30, 1994
<S> <C> <C> <C>
Net interest income $ 25,167 $ 40,555 $ 132,375
Provision for loan losses 3,929 8,162 24,594
Net interest income after provision
for loan losses 21,238 32,393 107,781
Non-interest income 87,679 104,528 284,852
Non-interest expense
(1994 includes a $49,000
contract termination fee) 81,510 138,450 286,882
Income (loss) before income taxes
(benefit) 27,407 (1,529) 105,751
Applicable income taxes (benefit) 9,870 (535) 37,013
Net income (loss) $ 17,537 $ (994) $ 68,738
</TABLE>
<PAGE>
Signet Banking Corporation
Financial Highlights
(dollars in thousands-except per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 Percent September 30 Percent
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net interest income
(taxable equivalent) $ 119,482 $ 133,177 (10.28)% $ 386,394 $ 392,106 (1.46)%
Net interest income 116,944 129,722 9.85 377,639 381,848 (1.10)
Net income 30,143 3,462 N/M 102,054 106,960 (4.59)
Per Common Share
Net income $ 0.50 $ 0.05 N/M $ 1.71 $ 1.86 (8.06)
Cash dividends declared 0.17 0.25 (32.00) 0.59 0.75 (21.33)
Book value 14.27 18.52 (22.95)
Period-end price 26 3/8 34 1/2 (23.55)
Average Daily Balance
Assets $10,755,762 $10,971,450 (1.97) $11,185,698 $11,259,824 (0.66)
Earning Assets 9,555,056 9,632,783 (0.81) 9,978,031 10,002,131 (0.24)
Loans (net of unearned income) 5,825,017 6,080,017 (4.19) 6,296,105 6,219,301 1.23)
Deposits 7,259,988 7,635,425 (4.92) 7,374,330 7,739,229 (4.71)
Core deposits 7,043,417 7,154,496 (1.55) 7,030,864 7,195,533 (2.29)
Common stockholders' equity 824,191 1,064,431 (22.57) 872,580 1,029,750 (15.26)
Common shares outstanding 60,145,919 57,898,078 (3.88) 59,690,734 57,503,856 3.80
Ratios
Return on average assets 1.11% 0.13% N/M 1.22% 1.27% (3.94)
Return on average common
stockholders' equity 14.51 1.29 N/M 15.64 13.89 (12.60)
Net yield margin 4.96 5.49 (9.65) 5.18 5.24 (1.15)
Allowance for loan losses to:
Non-performing loans 339.92 589.84 (42.37)
Non-performing assets 251.77 342.19 (26.42)
Net loans 2.35 3.46 (32.08)
Non-performing assets to loans
and foreclosed properties 0.93 1.01 (7.92)
Stockholders' equity to assets 7.59 9.81 (22.63)
At Period-end
Assets $11,093,115 $11,045,233 0.43
Earning assets 9,911,356 9,716,225 2.01
Loans (net of unearned income 5,509,437 6,511,155 (15.38)
Deposits 7,353,248 7,651,080 (3.89)
Core deposits 7,173,040 7,239,642 (0.92)
Common stockholders' equity 842,372 1,083,086 (22.22)
Non-performing assets 51,504 65,857 (21.79)
Number of common stockholders 15,134 15,462 (2.12)
Full-time employees 3,900 6,284 (37.94)
Part-time employees 1,049 1,288 (0.19)
</TABLE>
Note:The 1995 numbers reflect the spin-off of Capital One Financial Corporation
on February 28, 1995.
The common stock of Signet Banking Corporation is traded on the New York
Stock Exchange under the symbol "SBK."
<PAGE>
<TABLE>
<CAPTION>
Table 1
Signet Banking Corporation
Selected Quarterly Financial Information
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
1995 1995 1995 1994 1994
<S> <C> <C> <C> <C> <C>
Summary of Operations(1)
(dollars in thousands - except per share)
Net interest income (taxable equivalent) $ 119,482 $ 120,401 $ 146,511 $ 131,611 $ 133,177
Less: taxable equivalent adjustment 2,538 2,955 3,262 3,448 3,455
Net interest income 116,944 117,446 143,249 128,163 129,722
Provision for loan losses 8,681 4,250 7,180 3,000 3,000
Net interest income after provision
for loan losses 108,263 113,196 136,069 125,163 126,722
Non-interest income 47,094 42,939 121,115 148,433 151,820
Non-interest expense (2) 109,507 111,444 190,926 210,875 276,814
Income before income taxes (benefit) 45,850 44,691 66,258 62,721 1,728
Applicable income taxes (benefit) 15,707 15,005 24,033 19,847 (1,734)
Net income $ 30,143 $ 29,686 $ 42,225 $ 42,874 $ 3,462
Per common share:
Net income $ 0.50 $ 0.50 $ 0.71 $ 0.73 $ 0.05
Cash dividends declared 0.17 0.17 0.25 0.25 0.25
Average common shares outstanding 60,145,919 59,668,541 59,142,042 58,927,134 57,898,078
Selected Average Balances
(dollars in millions)
Assets $ 10,756 $ 10,486 $ 12,332 $ 12,088 $ 10,971
Earning assets 9,555 9,395 11,000 10,598 9,633
Loans (net of unearned income) 5,825 5,837 7,242 6,966 6,080
Deposits 7,260 7,248 7,619 7,768 7,635
Core deposits 7,043 7,009 7,040 7,178 7,154
Interest bearing liabilities 8,158 7,985 9,524 9,091 8,121
Stockholders' equity 824 794 1,002 1,094 1,064
Ratios
Return on average assets 1.11% 1.14% 1.39% 1.41% 0.13%
Return on average common stockholders' equity 14.51 15.00 17.09 15.55 1.29
Net loan losses to average loans 0.89 1.27 0.33 0.44 1.74
Net interest spread 4.32 4.50 4.79 4.34 4.96
Net yield margin 4.96 5.14 5.40 4.93 5.49
At period-end:
Allowance for loan losses to:
Non-performing loans 339.92 297.24 574.88 846.32 589.84
Non-performing assets 251.77 237.60 364.76 454.34 342.19
Net loans 2.35 2.40 2.69 2.78 3.46
Non-performing assets to loans and
foreclosed properties 0.93 1.01 0.74 0.61 1.01
Stockholders' equity to assets 7.59 7.70 7.36 8.60 9.81
</TABLE>
(1)The 1995 numbers reflect the spin-off of Capital One Financial Corporation
("COF") on February 28, 1995
(2)The third and fourth quarters of 1994 included $24.2 and $31.1 million of
credit card solicitation expense, respectively. The first quarter of 1995
included $29.0 million of credit card solicitation expense which
represented two months' worth since COF spun off on February 28, 1995. The
third quarter of 1994 included a $49.0 million contract termination fee and
$33.6 million of restructuring charges. The fourth quarter of 1994 included
$9.6 million of restructuring charges.
Table 2
Signet Banking Corporation
Net Interest Income Analysis
Taxable Equivalent Basis (in thousands)
<TABLE>
<CAPTION>
Third Quarter 1995 Compared Third Quarter 1995 Compared YTD September 1995 Compared
with Third Quarter 1994 with Second Quarter 1995 with YTD September 1994
Increase Change due to* Increase Change due to* Increase Change due to *
(Decrease) Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ (8,653) $ (4,971) $(3,682) $ 130 $ 102 $ 28 $ 40,015 $ 12,950 $ 27,065
Securities available
for sale 15,822 10,721 5,101 534 (276) 810 34,413 11,366 23,047
Investment securities 1,352 1 1,351 (1,318) (57) (1,261) 5,094 (153) 5,247
Other earning assets (917) 6,454 (7,371) 4,245 (3,505) 7,750 (6,097) 7,546 (13,643)
Total interest income 7,604 10,248 (2,644) 3,591 (1,284) 4,875 73,425 47,593 25,832
Interest expense:
Interest bearing deposits 10,839 15,634 (4,795) 1,964 2,294 (330) 33,626 25,973 7,653
Fed funds and repurchase
agreements 14,018 8,965 5,053 2,754 (767) 3,521 32,125 11,991 20,134
Other short-term
borrowings (3,751) (2,805) (946) (413) (207) (206) 4,353 4,184 169
Long-term borrowings 193 210 (17) 205 208 (3) 9,033 (21) 9,054
Total interest expense 21,299 21,194 105 4,510 2,188 2,322 79,137 67,999 11,138
Net interest income $(13,695) $(13,320) $ (375) $ (919) $(3,375) $ 2,456 $ (5,712) $ (5,367) (345)
</TABLE>
*The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amount of the changes
in each. The changes in income and expense are calculated independently for
each line in the schedule. The totals for the volume and rate columns are
not the sum of the individual lines.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Signet Banking Corporation ("Signet" or "the Company"), with headquarters in
Richmond, Virginia, is a registered multi-bank, multi-state holding company
whose stock is listed on the New York Stock Exchange under the symbol SBK. At
September 30, 1995, Signet had assets of $11.1 billion and provided financial
services through three principal subsidiaries: Signet Bank/ Virginia,
headquartered in Richmond, Virginia; Signet Bank/Maryland, headquartered in
Baltimore, Maryland; and Signet Bank N.A., headquartered in Washington, D.C.
Signet engages in general commercial and consumer banking businesses
and provides a full range of financial services to individuals, businesses and
organizations through 244 banking offices, 252 automated teller machines and a
24-hour a day full-service Telephone Banking Center. Signet offers investment
services including municipal bond, government, federal agency and money market
sales and trading, foreign exchange trading, mutual funds and discount
brokerage. In addition, specialized services for trust, leasing, asset based
lending, cash management, real estate, insurance, consumer financing and an
international operation concentrating on trade finance are offered. Signet's
primary market area extends from Baltimore to Washington, south to Richmond, and
on to Hampton Roads/Tidewater Virginia. Signet markets several of its products
nationally.
During the third quarter of 1995, Signet adopted Statement of
Financial Accounting Standards ("SFAS") No. 122, "Accounting For Mortgage
Servicing Rights". The statement requires that a mortgage banking enterprise
recognize internally originated rights to service mortgage loans sold to others
as separate assets. Upon adoption, Signet recognized pre-tax income of
approximately $3.7 million.
Also during the three months ended September 30, 1995, Signet
experienced higher charge-offs related to risk tests conducted for its
"loan-by-check" product. These charge-offs were on loans generated from direct
mail solicitations in late 1994 as Signet ran controlled tests to determine the
criteria to be used when Signet expands loan-by-check solicitations. Management
expects consumer loan charge-offs to decline to more moderate levels once the
loans from these solicitations have seasoned.
On October 25, 1994, Signet filed an amended registration statement
with the Securities and Exchange Commission which described plans to spin off
Capital One Financial Corporation ("Capital One"). Under such plans, designated
assets and liabilities of Signet Bank/ Virginia's credit card division,
including all credit card servicing functions, a credit card securitization
master trust and substantially all credit card accounts, were transferred to
Capital One Bank, a newly chartered limited purpose credit card bank. Capital
One Bank became, in conjunction with the transfer, a wholly-owned subsidiary of
Capital One, a wholly-owned subsidiary of Signet (the "Separation"). Accounts of
cardholders in Signet's market area representing approximately $335 million, or
5%, of the managed credit card portfolio were retained by Signet. The Separation
occurred November 22, 1994 at which time 7,125,000 shares of common stock of
Capital One were sold in an initial public offering. Signet distributed all of
the remaining common stock it held in Capital One to Signet stockholders in a
tax-free distribution on February 28, 1995 ("the Spin-Off") at which time Signet
and Capital One became independent companies.
The following discussion should be read in conjunction with the
accompanying financial statements, notes and other supplemental information
contained in this document. Results of operations for the three and nine months
ended September 30, 1995 are not necessarily indicative of results to be
attained for any other period. In addition to the discussion of consolidated
information, PRO FORMA data is provided for the same periods where it was
meaningful to discuss the Company's results excluding Capital One. Consolidated
and PRO FORMA results are the same for the second and third quarters of 1995.
PRO FORMA financial information is provided as supplementary financial data on
pages 21 through 27.
EARNINGS ANALYSIS
Consolidated net income for the third quarter of 1995 was $30.1 million, or $.
50 per share, compared with $3.5 million, or $.05 per share, in the same quarter
last year. The third quarter 1994 consolidated earnings were impacted by $82.6
million of special pre-tax charges for restructuring and for terminating certain
data processing contracts. On a PRO FORMA basis, the third quarter 1995 net
income increased 15% from $26.7 million or $.45 per share for the same three
months last year, excluding restructuring charges. Consolidated net income for
the first nine months of 1995 was $102.1 million or $1.71 per share compared
with $107.0 million or $1.86 per share in the same period last year.
Consolidated earnings for the nine months ended September 30, 1995, include the
results of Capital One for the two months prior to the Spin-Off on February 28,
1995. On a PRO FORMA basis, net income for the first nine months of 1995 was
$86.5 million, an increase of 44% from the $60.1 million earned in the first
nine months of 1994 after adjusting for the restructuring charges.
The return on assets (ROA) for the third quarter and nine months ended
September 30, 1995 was 1.11% and 1.22%, respectively. This compares with .13%
and 1.27% for the same respective periods last year. On a PRO FORMA basis, ROA
for the first nine months of 1995 was 1.10%, up from .93% in 1994, excluding
restructuring charges. The third quarter 1995 ROA of 1.11% fell from the PRO
FORMA ROA of 1.23% for the same period in 1994, excluding restructuring charges,
as average assets increased proportionally more than net income.
The return on common stockholders' equity (ROE) for the third quarter
and nine months ended September 30, 1995 was 14.51% and 15.64%, respectively.
This compares with 1.29% and 13.89% for the same periods last year. On a PRO
FORMA basis and excluding the 1994 restructuring charges, ROE for the first nine
months of 1995 increased significantly from 9.80% in 1994 to 14.62% this year.
The 14.51% ROE for the third quarter of 1995 also improved nearly 200 basis
points from 12.56% (PRO FORMA and excluding restructuring charges) in the third
quarter of 1994.
NET INTEREST INCOME
Taxable equivalent net interest income, a principal component of earnings,
totaled $119.5 million for the quarter and $386.4 million for the nine months
ended September 30, 1995. This was a 10% decrease from the same quarter and less
than a 2% decline from the first nine months last year. On a PRO FORMA ba sis,
taxable equivalent net interest income totaled $361.2 million for the nine
months ended September 30, 1995. This compares with $92.6 million for the
quarter and $259.7 million for the first nine months of last year, on a PR O
FORMA basis, representing increases of 29% and 39% for the respective periods.
PRO FORMA taxable equivalent net interest income increased in 1995 compared with
1994 due to strong growth in earning assets, particularly in the consumer loan
portfolio.
The net yield margin for the third quarter and nine months ended
September 30, 1995 was 4.96% and 5.18%, respectively, down 53 basis points and 6
basis points from the same periods last year. On a PRO FORMA basis, the net
yield margin was 5.17% for the nine months ended September 30, 1995. The net
yield margin rose 6 basis points and 62 basis points, on a pro forma basis ,
from the third quarter and first nine months of last year, respectively. The
increase in the pro forma net yield margin from 1994 was primarily due to yields
on earning assets improving more quickly than the rise in funding costs. Table 3
analyzes the change in the net yield margin from the second quarter to the third
quarter of 1995. An approximate basis point impact was calculated for each item
noted. The decrease in net interest spread and net yield margin from the second
quarter of 1995 was primarily due to a shift in the earning asset mix.
Signet uses various off-balance sheet interest rate derivatives as an
integral part of its asset and liability management. For Signet's core business,
variable rate assets generally exceed variable rate liabilities. To hedge
against the resulting interest rate risk, Signet has entered into derivative
transactions. At September 30, 1995, the notional values of the Company's
derivative products for the purpose of hedging interest rate risk were $2.7
billion of interest rate swaps, $650 million of interest rate floors and $300
million of interest rate caps. Interest rate derivative products reduced the
third quarter margin by 3 basis points compared with adding 5 basis points to
the second quarter of 1995 net yield margin, primarily due to contracts
maturing. The impact of these contracts fell from $ 1.3 million of income in the
second quarter of 1995 to $.7 million of expense in the current quarter.
Table 3
SIGNET BANKING CORPORATION
ANALYSIS OF CHANGE IN NET YIELD MARGIN
Second Quarter 1995 versus Third Quarter 1995
<TABLE>
<S> <C>
Net Yield Margin for Second Quarter 1995 5.14%
Higher average and lower yield on
Commercial Loans (0.09)
Decrease in derivative income (0.08)
Lower funding costs (excluding decrease in
derivative income) 0.03
Change in mix and yield on remaining
earning assets (0.03)
Higher average and lower yield on Consumer
Loans (Total On-Balance Sheet) (0.01)
Net Yield Margin for Third Quarter 1995 4.96%
</TABLE>
Provision and Allowance for Loan Losses
On a pro forma basis, the provision for loan losses was $8.7 million for the
third quarter and $16.2 million for the first nine months of 1995. This compares
with provision reversals of $5.2 million in the third quarter and $13 .1 million
for the first nine months of 1994. The increase in provision was related to
growth in the consumer loan portfolio. For the first nine months of 1995, pro
forma net loan losses totaled $34.3 million, $13.9 million of which resulted
from the bulk sale of real estate related loans in the second quarter for which
there was already sufficient allowance. The sale was made as part of Signet's
overall strategy to reduce its commercial real estate exposure. The remaining
1995 loan losses are principally due to a 73% increase in the average consumer
loan portfolio in the first nine months of 1995 compared with the same period
last year and higher charge-offs related to late 1994 loan-by-check risk tests.
Management expects consumer loan charge-offs to decline to more moderate levels
once the loans from these solicitations have seasoned. Excluding charge-offs
related to the 1995 and 1994 sales of real estate related loans, loan losses for
the first nine months of 1995 amounted to .47% of average loans which is a 40
basis points increase from the comparable period in 1994, on a pro forma basis.
The allowance for loan losses at September 30, 1995 was $129.7
million, or 2.35% of net loans, compared with $156.8 million, or 3.32% of net
loans, at September 30, 1994, on a pro forma basis, and $136.5 million, or 2.40%
of net loans, at June 30, 1995. The decrease from September 30, 1994, on a pro
forma basis, resulted primarily from a $3.1 million loan loss provision reversal
in the fourth quarter of 1994, higher consumer loan charge-offs and charge-offs
taken on real estate related loans during the past year, the majority of which
were related to the real estate loan sale in the second quarter of 1995.
To determine the appropriate level of allowance for loan losses,
management identifies and examines on a monthly basis the commercial, real
estate and large consumer loans warranting attention and reviews the
creditworthiness of the borrower, the adequacy of underlying collateral and the
impact of business and economic conditions upon the borrower.
Beginning in 1995, Signet adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." In accordance
with the SFAS No. 114, impaired loans are measured and reported based on the
present value of the loan's collateral if the loan is collateral dependent.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. A valuation allowance is required to the extent that the measure
of impaired loans is less than the recorded investment.
SFAS No. 114 does not apply to large groups of homogeneous loans such
as consumer installment and bank card loans, which are collectively evaluated
for impairment. Smaller balance populations of commercial loans are also
excluded from the application of SFAS No. 114. At September 30, 1995, Signet's
loans that are considered to be impaired under SFAS No. 114 are comprised of
$33.7 million of non-accrual loans for which the related allowance for credit
losses is $9.8 million. The average recorded investment in impaired loans during
the nine months ended September 30, 1995 was approximately $28.6 million.
Collateral dependent loans, which were measured at the fair value of the loan's
collateral made up the majority of impaired loans at September 30, 1995.
SFAS No. 118 allows a creditor to use existing methods for recognizing
interest income on impaired loans. Interest receipts on impaired loans are
applied in a manner consistent with Signet's policy for non-accrual loans. For
the nine months ended September 30, 1995, no interest income was recorded on
non-accrual loans. All interest receipts on impaired loans were applied to the
principal.
The consumer portfolio receives an overall allocation based on such
factors as current and anticipated economic conditions, historical charge-off
and recovery rates and trends in delinquencies. The remaining loan portfolio
(unclassified commercial real estate loans) receives a general allocation deemed
to be reasonably necessary to provide for losses based on the factors listed
above and on migration analysis which traces loan risk ratings and related
losses over time. Manage- ment believes that the allowance for loan losses is
adequate to cover anticipated losses in the loan portfolio under current
economic conditions.
Table 4
Signet Banking Corporation
Statement of Changes in Allowance For Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 136,497 $ 245,764 $ 151,729 $ 220,519 $ 253,313
Additions to allowance charged to expense 8,681 3,000 4,250 20,111 11,498
Transfer to loans held for securitization/sale (2,542) (350) (889) (4,920) (4,719)
Additions arising from acquisition 3,327 3,327
Transfer to Capital One Financial Corporation (68,516)
Loans charged off:
Consumer 9,354 7,198 5,744 24,218 24,530
Commercial * 77 626 1,413 1,918 8,686
Real estate - construction 683 8,831 389 1,080 8,831
Real estate - mortgage * 4,325 19,335 13,343 18,572 20,209
Total loans charged off 14,439 35,990 20,889 45,788 62,256
Recoveries of loans previously charged off:
Consumer 402 2,558 315 2,963 9,670
Commercial 758 737 1,056 3,800 5,355
Real estate - construction 131 3,637 833 1,201 4,746
Real estate - mortgage * 184 2,676 92 302 4,425
Total recoveries 1,475 9,608 2,296 8,266 24,196
Net loans charged off 12,964 26,382 18,593 37,522 38,060
Balance at end of period $ 129,672 $ 225,359 $ 136,497 $ 129,672 $ 225,359
Net loan losses (annualized) as a percentage
of average loans:
Consumer 1.64% 0.61% 0.92% 1.01% 0.62%
Commercial (0.10) (0.02) 0.06 (0.10) 0.21
Real estate 2.10 9.89 5.49 2.63 2.90
Total 0.89% 1.74% 1.27% 0.79% 0.82%
Allowance for loan losses to net loans at end
of period 2.40% 2.35% 3.46%
</TABLE>
* Real estate - mortgage includes real estate - commercial mortgage and real
estate - residential mortgage. Real estate- residential mortgage charge-offs and
recoveries were not significant for the periods presented. Charge-offs related
to the loan sale in the second quarter of 1995 were $13,897, of which $12,594
were real estate mortgage and $1,303 were commercial. Charge-offs related to the
loan sale in the third quarter of 1994 were $21,012, of which $16,494 were real
estate mortgage and $4,518 were real estate construction.
Non-Interest Income
Total non-interest income was $47.1 million in the third quarter of 1995, a
decrease of $104.7 million from the third quarter of 1994 and a $4.2 million
increase from the second quarter of 1995. The decrease from 1994 was caused by a
sharp decline in credit card servicing and service charge income in 1995 due to
the Spin-Off. On a pro forma basis, total non-interest income declined $8.1
million from the third quarter of 1994 primarily the result of a $4.9 million
drop in credit card servicing and service charge income. During 1994, for pro
forma purposes, the credit card portfolio was assumed to be entirely off-balance
sheet which caused servicing income to be higher. The increase in non-interest
income from the second quarter of 1995 was caused by growth in service charges
on deposit accounts, a rise in trust income as Signet recorded fees for managing
the recently acquired Blanchard funds and the adoption of SFAS No. 122 mentioned
earlier. Mortgage servicing and origination fee income increased 10% from the
second quarter this year to $6.0 million as a result of an increase in mortgage
loan volume. An increase in mortgage servicing income from third quarter 1994 to
third quarter 1995 more than offset a declin e in loan origination income. For
the third quarter of 1995, Signet recorded trading gains of $1.8 million, a
decline from $3.8 million of trading gains in the second quarter, but an
improvement from $0.3 million of net gains recognized in the third quarter of
1994.
Non-Interest Expense
Total non-interest expense amounted to $109.5 million in the third quarter of
1995, a significant decline from $276.8 million in the third quarter of 1994.
Decreases occurred in all categories as a result of the Spin-Off and the
restructuring charges recorded in 1994. The number of full-time equivalent
employees fell 36% from the third quarter of 1994 as a result of the Spin-Off,
the displacement of approximately 750 employees during the latter half of 1994
and an early retirement program in which 225 employees participated. Total
salary and employee benefits declined $29.1 million, or 34%, from the third
quarter of 1994 to the third quarter of 1995. During the third quarter of 1995,
Signet received a rebate of approximately $4.1 million on its FDIC assessment
which reduced expenses further. On a pro forma basis, total non-interest expense
declined slightly from the second quarter of this year's total of $111.4 million
and decreased 3% from $112.6 million (excluding the restructuring charges) in
the third quarter of 1994 as Signet continued efforts to reduce non-interest
expense.
Excluding Capital One, restructuring charges and foreclosed property
expense for all periods, Signet's efficiency ratio (the ratio of non-interest
expense to taxable equivalent operating income) for the third quarter of 1995
improved to 65.99% compared with 75.89% for the same quarter last year and
68.67% for the second quarter this year. The improvement in this ratio is
primarily the result of strong revenue growth. The third quarter 1995 efficiency
ratio is within the range that management set as a goa l to reach by the fourth
quarter of 1995.
Table 5
Signet Banking Corporation (excluding Capital One)
Non-Interest Income and Expense
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Non-interest income:
Service charges on deposit accounts $ 17,732 $ 16,234 $ 17,212 $ 51,415 $ 50,037
Credit card servicing and service charge income 2,511 7,379 1,633 6,695 20,002
Trust income 6,430 4,747 5,212 16,534 14,417
Mortgage servicing and origination 5,985 4,117 5,445 15,592 14,363
Other service charges and fees 3,819 3,591 3,467 10,999 11,289
Trading profits (losses) 1,806 343 3,816 8,015 (374)
Gains (losses) on sale of mortgage loans 2,422 (71) (545) 1,877 (2,255)
Gains on sale of mortgage servicing 6,000 977 977 6,000
Other 5,658 12,690 5,475 14,010 40,256
Non-interest operating income 46,363 55,030 42,692 126,114 153,735
Securities available for sale gains 166 140 244 512 3,193
Investment securities gains (losses) 565 22 3 823 (1)
Total non-interest income $ 47,094 $ 55,192 $ 42,939 $ 127,449 $ 156,927
Non-interest expense:
Salaries $ 45,792 $ 48,078 $ 43,668 $ 132,098 $ 142,254
Employee benefits 10,517 12,360 12,076 36,291 41,269
Total staff expense 56,309 60,438 55,744 168,389 183,523
Occupancy 9,635 11,248 9,434 28,912 31,201
Supplies and equipment 9,384 8,019 8,715 26,657 24,937
External data processing services 6,868 8,236 6,748 19,826 20,636
Travel and communications 6,138 5,638 5,604 17,336 16,806
Restructuring charge 33,619 33,619
Professional services 3,783 3,257 4,069 11,238 11,306
Public relations, sales and advertising 3,360 2,844 4,272 10,887 10,221
FDIC assessment (312) 4,242 4,139 7,965 12,381
Credit and collection 760 694 265 1,097 1,870
Foreclosed property - net 64 595 (556) 80 1,189
Other 13,518 7,433 13,010 39,942 23,106
Total non-interest expense $ 109,507 $ 146,263 $ 111,444 $ 332,329 $ 370,795
</TABLE>
Note:Other non-interest expense for the nine months ended September 30, 1995
included $2,018 of minority interest (net of income taxes) in Capital One
Financial Corporation.
Table 6
Signet Banking Corporation
CONSOLIDATED AVERAGE BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1995 1994
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets (tax equivalent basis):*
Interest bearing deposits with other banks $ 8,136 $ 127 6.11% $ 243,888 $ 2,851 4.57%
Federal funds and resale agreements 469,512 7,166 5.97 1,003,048 11,602 4.53
Trading account securities 464,254 7,410 6.33 257,789 5,062 7.79
Loans held for securitization 425,543 11,561 10.87 554,738 13,181 9.50
Loans held for sale 312,734 7,785 9.74 127,542 2,270 6.96
Securities available for sale 1,712,148 31,946 7.30 1,157,308 16,124 5.45
Investment securities - taxable 230,852 4,190 7.26 20,984 311 5.93
Investment securities - nontaxable 106,860 3,140 11.75 187,469 5,667 12.09
Loans (net of unearned income):
Consumer 2,182,724 60,296 10.98 3,046,722 82,777 10.82
Commercial 2,747,241 54,598 7.88 2,149,870 41,220 7.61
Real estate - construction 230,364 6,080 10.33 229,590 5,306 9.04
Real estate - commercial mortgage 423,622 9,971 9.34 564,423 13,389 9.41
Real estate - residential mortgage 241,066 5,011 8.31 89,412 1,917 8.58
Total loans 5,825,017 135,956 9.26 6,080,017 144,609 9.44
Total earning assets 9,555,056 $209,281 8.69% 9,632,783 $201,677 8.31%
Non-rate related assets:
Cash and due from banks 533,901 501,289
Allowance for loan losses (133,144) (241,813)
Premises and equipment (net) 174,691 248,569
Other assets 625,258 830,622
Total assets $10,755,762 $10,971,450
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Money market and interest checking $ 1,037,342 $ 6,794 2.60% $ 1,012,616 $ 5,842 2.29%
Money market savings 1,341,762 11,873 3.51 1,618,108 10,918 2.68
Savings accounts 1,315,832 12,785 3.85 1,042,726 8,656 3.29
Savings certificates 1,791,296 22,070 4.89 1,937,671 14,820 3.03
Large denomination certificates 100,367 1,332 5.19 274,959 3,115 4.43
Foreign 116,204 1,721 5.80 205,970 2,385 4.53
Total interest bearing deposits 5,702,803 56,575 3.94 6,092,050 45,736 2.98
Federal funds and repurchase agreements 2,201,617 28,900 5.14 1,470,682 14,882 3.96
Other short-term borrowings 304,970 3,751 4.81
Long-term borrowings 253,174 4,324 6.68 253,773 4,131 6.37
Total interest bearing liabilities 8,157,594 $ 89,799 4.37% 8,121,475 $ 68,500 3.35%
Non-interest bearing liabilities:
Demand deposits 1,557,185 1,543,375
Other liabilities 216,792 242,169
Common stockholders' equity 824,191 1,064,431
Total liabilities and stockholders' equity $10,755,762 $10,971,450
Net interest income/spread $119,482 4.32% $133,177 4.96%
Interest income to average earning assets 8.69% 8.31%
Interest expense to average earning assets 3.73 2.82
Net yield margin 4.96% 5.49%
</TABLE>
*Includes the effects of taxable equivalent adjustments using a tax rate of 35%.
<TABLE>
<CAPTION>
Nine Months Ended
June 30 September 30
1995 1995 1994
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,799 $ 358 6.21% $ 42,739 $ 1,923 5.93% $ 250,754 $ 8,374 4.40%
532,922 8,232 6.11 678,648 30,707 5.97 823,814 25,226 4.04
553,080 8,936 6.48 478,617 23,064 6.44 272,145 15,449 7.59
153,300 6,420 16.75 242,858 22,186 12.18 552,329 38,904 9.39
234,107 5,858 9.90 214,652 15,122 9.29 231,268 11,146 6.36
1,679,836 31,412 7.40 1,657,709 91,201 7.25 1,425,643 56,788 5.25
235,514 4,257 7.23 229,777 12,393 7.19 22,916 1,003 5.84
146,867 4,391 11.96 136,926 12,247 11.93 203,961 18,543 12.12
2,349,345 62,068 10.59 2,819,625 239,998 11.37 3,172,924 238,763 10.03
2,553,554 51,058 8.02 2,555,956 152,790 7.99 2,133,242 122,309 7.67
217,685 5,628 10.23 218,701 16,862 10.17 261,718 15,795 7.96
480,112 11,998 10.02 474,337 34,908 9.84 572,674 36,793 8.59
236,107 5,074 8.60 227,486 14,364 8.42 78,743 5,247 8.88
5,836,803 135,826 9.33 6,296,105 458,922 9.75 6,219,301 418,907 9.01
9,395,228 $205,690 8.78% 9,978,031 $667,765 8.95% 10,002,131 $594,340 7.94%
509,633 516,299 496,765
(144,407) (157,777) (247,634)
164,536 189,071 237,224
561,476 660,074 771,338
$10,486,466 $11,185,698 $11,259,824
$ 1,031,701 $ 6,939 2.70% $ 1,027,833 $ 19,874 2.59% $ 1,018,734 $ 16,999 2.23%
1,346,920 11,704 3.49 1,363,374 35,535 3.48 1,662,027 33,617 2.70
1,255,593 11,800 3.77 1,253,802 35,312 3.77 978,809 23,355 3.19
1,876,689 20,747 4.43 1,872,103 59,964 4.28 1,981,775 41,863 2.82
92,660 1,186 5.06 227,757 10,218 5.92 316,045 9,974 4.16
146,829 2,235 6.02 115,709 5,209 5.94 227,651 6,678 3.87
5,750,392 54,611 3.81 5,860,578 166,112 3.79 6,185,041 132,486 2.86
1,950,959 26,146 5.30 1,982,044 78,744 5.24 1,697,530 46,619 3.62
30,098 413 5.43 305,599 15,302 6.60 304,563 10,949 4.74
253,427 4,119 6.43 402,331 21,213 6.95 255,332 12,180 6.29
7,984,876 $ 85,289 4.28% 8,550,552 $281,371 4.40% 8,442,466 $202,234 3.20%
1,497,770 1,513,752 1,554,188
210,092 248,814 233,420
793,728 872,580 1,029,750
$10,486,466 $11,185,698 $11,259,824
$120,401 4.50% $386,394 4.55% $392,106 4.74%
8.78% 8.95% 7.94%
3.64 3.77 2.70
5.14% 5.18% 5.24%
</TABLE>
In the third quarter of 1994, Signet recorded a $43.2 million
restructuring charge related to a comprehensive plan for reducing costs and
increasing revenue in order to enhance its competitive position. As of September
30, 1995, the amounts actually paid and charged against the restructuring
liability were approximately $6.5 million for severance payments to
approximately 650 employees, $2.5 million for payments made under the early
retirement program and approximately $6.2 million for lease termination and
other facilities related costs. The remaining liability of $28 .0 million is
primarily comprised of accrued retiree medical and pension benefits and accrued
facilities related costs.
Income Taxes
Signet recorded income tax expense of $15.7 million for the third quarter of
1995 compared with a tax benefit of $1.2 million for the third quarter of 1994,
on a pro forma basis, and $15.0 million for the second quarter of this year. The
tax benefit in the third quarter of 1994 was principally due to tax-exempt
income exceeding the pre-tax income as a result of the restructuring charges.
The effective tax rate for the second and third quarters of 1995 was 34%.
FINANCIAL CONDITION (on a pro forma basis)
Earning assets averaged $9.6 billion for the third quarter and $9.3 billion for
the first nine months of 1995, an increase of 23% and 22% from the same
respective periods last year. Average investment securities rose $129 million
and average securities available for sale were up $555 million from the prior
year's third quarter. Loans held for securitization averaged $426 million for
the third quarter of 1995. These assets were reclassified from the loan category
in anticipation of securitizations. There were no loans held for securitization
in the third quarter of last year. Total loans averaged $5.8 billion for the
quarter, reflecting a 30% rise from the third quarter of 1994. Average consumer
loans increased 49% to $2.2 billion as a result of the growth in student and
installment loans. The on-balance sheet average consumer loan portfolio
increased 89% to $2.8 billion from the 1994 third quarter. This amount includes
the consumer loan portfolio, loans held for securitization and loans held for
sale. Average real estate-construction loans remained level at $230 million.
Average real estate-commercial mortgage loans declined 25% to $424 million. Real
estate-residential mortgages were up 170% to $241 million as a result of loans
acquired from Pioneer Financial Corporation and management's decision to retain
rather than sell a portion of the mortgages originated by Signet. The sale of
real estate related loans in the third quarter of 1994 and second quarter of
1995 primarily impacted the real estate-construction and real estate-commercial
mortgage loan categories. The yield on earning assets was 8.69% for the third
quarter of 1995 down from 8.78% for the second quarter this year due to a shift
in the mix of earning assets.
Average interest bearing liabilities totaled $8.2 billion in the third
quarter and $8.0 billion for the first nine months of 1995, up 37% and 31% from
the same respective periods of 1994. Money market savings declined $276 million,
or 17%, and savings certificates decreased $146 million, or 8%, from the same
quarter last year. Deposit categories experiencing increases from the same
quarter last year included money market and interest checking up $25 million and
savings accounts up $273 million, or 26%. Average core deposits fell $111
million, or less than 2%, when comparing third quarter of 1995 with the same
quarter last year. Purchased funds, which include large denomination
certificates, foreign deposits, federal funds and repurchase agreements and
other short-term and long-term borrowings, averaged $2.7 billion for the 1995
third quarter, up $19 7 million from the second quarter of 1995. The average
rate on interest bearing liabilities was 4.37% for the third quarter of 1995
compared with 4.28% for the second quarter this year, an increase of 9 basis
points, which was generally the due to a decline in derivative income.
CONSUMER LOAN GROWTH
In 1994, Signet expanded its use of information-based strategies to all
types of consumer loans, which significantly increased growth. This technique
involves generating a data base of creditworthy customers for particular
products and then following up with direct-mail solicitations. Much of the
growth was in a new loan product, "loan-by-check". Customers who receive a
direct-mail solicitation are offered installment loans in the form of a check.
To activate the loan, the customer endorses the note and deposits the check.
Signet is also applying information-based strategies to home equity, student and
small business loans. Solicita- tions in these areas are mostly in the
preliminary testing stages. These tests are designed to help Signet develop
products that are both appealing to customers and economically feasible for the
Company. As a result of these solicitations, loans are growing at a strong pace.
From September 30, 1994 to September 30, 1995, the student loan portfolio
(including $300 million in student loans held for securitization) increased $211
million; the installment loan portfolio (including $165 million in loans held
for sale) grew $636 million; and the home equity loan portfolio (including $450
million in loans held for securitization) was up $53 million. The managed
consumer loan portfolio, which includes securitized receivables, increased by
$725 million, or 37%, from September 30, 1994, on a pro forma basis, and by $125
million, or 5%, from June 30, 1995.
Table 7
Signet Banking Corporation
Non-performing Assets and Past Due Loans
(dollars in thousands)
<TABLE>
<CAPTION>
September 30 June 30 December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 8,595 $ 16,361 $ 10,785 $ 10,548
Consumer 1,039 1,518 1,434 1,708
Real estate - construction 3,471 9,080 4,116 5,490
Real estate - mortgage * 25,043 9,064 29,587 7,310
Total non-accrual loans 38,148 36,023 45,922 25,056
Restructured loans:
Commercial 1,184
Real estate - construction 1,000 1,000
Total restructured loans 2,184 1,000
Total non-performing loans 38,148 38,207 45,922 26,056
Foreclosed properties 13,356 28,213 11,525 22,480
Less foreclosed property reserve (563)
Total foreclosed properties 13,356 27,650 11,525 22,480
Total non-performing assets $ 51,504 $ 65,857 $ 57,447 $ 48,536
Percentage to loans (net of unearned) and
foreclosed properties 0.93% 1.01% 1.01% 0.61%
Allowance for loan losses to:
Non-performing loans 339.92 589.84 297.24 846.32
Non-performing assets 251.77 342.19 237.60 454.34
Accruing loans past due 90 days or more $ 66,232 $ 62,626 $ 54,538 $ 65,333
</TABLE>
*Real estate - mortgage includes real estate-commercial mortgage and real
estate-residential mortgage. Real estate - residential mortgage non-accrual
loans were not significant for the periods presented.
RISK ELEMENTS
Non-performing assets include non-accrual loans, restructured loans and
foreclosed properties. Non- performing assets declined $5.9 million or 10% in
the third quarter of 1995. Non-performing assets represented 0.93% of total
loans and foreclosed properties at September 30, 1995, down from 1.01% and 1.39%
at June 30, 1995 and September 30, 1994, on a pro forma basis, respectively. The
allowance for loan losses equaled 340% of non-performing loans at September 30,
1995, up from 297% at June 30, 1995 and down from 411% at September 30, 1994, on
a pro forma basis. The ratio of the allowance to non-performing assets rose to
252% at September 30, 1995 from 238% at June 30, 1995 and September 30, 1994, on
a pro forma basis.
Foreclosed properties totaled $13.4 million at the end of the third quarter
of 1995, down from $22.5 million at the previous year-end, and were equal to 26%
of total non-performing assets and 32% of non-performing real estate assets. In
accordance with Statement No. 114, a loan is classified as foreclosed property
when possession has been taken of the collateral, regardless of whether formal
foreclosure proceedings have taken place.
Accruing loans which are contractually past due 90 days or more as to
principal or interest payments totaled $66.2 million at September 30, 1995. This
is a 21% increase from the $54.5 million level as of June 30, 1995, and
represents a 47% increase from the $45.1 million reported at September 30, 1994,
on a pro forma basis. The September 30, 1995 total was comprised of $47.3
million of consumer loans (of which $28.1 million were student loan
delinquencies, which are indirectly government guaranteed and do not represent
material loss exposure, and $5.1 million of credit card loans); $14.6 million of
mortgage loans; $3.9 million of commercial loans; and $.4 million of
construction loans.
STOCKHOLDERS' EQUITY DATA
At September 30, 1995, stockholders' equity totaled $842 million, an
increase of 13% from the December 31, 1994 level of $744 million, on a pro forma
basis. Approximately $383 million of Signet's stockholders' equity transferred
to Capital One in connection with the Spin-Off. The Company's total
stockholders' equity to assets ratio was 7.59% at September 30, 1995, slightly
lower than the 7.70% at June 30, 1995 but higher than the 7.54% at December 31,
1994, on a pro forma basis. Signet's risk-adjusted capital ratios at September
30, 1995 remained strong at 9.91% and 12.68% for Tier I and Total Capital,
respectively. The leverage ratio is calculated by dividing Tier I Capital by the
current quarter's total average assets less goodwill and other disallowed
intangibles. Signet's leverage ratio at September 30, 1995 was 7.06% down from
7.20% at June 30, 1995. For most corporations, including Signet, the minimum
leverage ratio is 3% plus an additional cushion of 100 to 200 basis points
depending upon risk profiles and other factors. At September 30, 1995, all three
of Signet's banking subsidiaries met the criteria established by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") for "well
capitalized" institutions.
Table 8
Signet Banking Corporation
Selected Capital Data
(dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994 1994
<S> <C> <C> <C>
Qualifying common stockholders' equity $ 815,149 $ 1,098,911 $ 1,237,453
Less goodwill and other disallowed intangibles (60,553) (44,014) (44,581)
Total Tier I capital 754,596 1,054,897 1,192,872
Qualifying debt 115,334 166,400 165,800
Qualifying allowance for loan losses 95,587 105,237 119,812
Total Tier II capital 210,921 271,637 285,612
Total risked-based capital $ 965,517 $1,326,534 $ 1,478,484
Total risk-adjusted assets $7,612,866 $8,298,825 $ 9,484,219
Ratios:
Tier I capital 9.91% 12.71% 12.58%
Total risk-based capital 12.68 15.98 15.59
Tier I leverage 7.06 9.65 9.90
Tangible Tier I leverage 6.64 9.30 9.57
Total stockholders' equity to assets 7.59 9.81 8.60
Common dividend payout ratio (year-to-date) 34.50 40.32 38.61
Book value per share $ 14.27 $ 18.52 $ 18.96
</TABLE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
Signet's interest rate sensitivity position is managed by the Asset and
Liability Committee ("ALCO") and monitored through the use of simulations on
rate sensitive pre-tax income. Interest rate sensitivity is the relationship
between changes in market interest rates and changes in rate sensitive income
due to the repricing characteristics of assets and liabilities. For example, in
periods of rising rates, the core banking businesses will experience wider
spreads as consumer deposit costs lag increases in market interest rates. Impr
oved spreads due to the lag in pricing on consumer deposits will be partially
offset to the extent that the funding cost on the investment portfolio
increases. ALCO routinely uses derivatives, such as interest rate swaps, to help
insulate the Company against the possibility of sudden changes in interest
rates.
ALCO, in managing interest rate sensitivity, also uses simulations to
better measure the impact that market changes and alternative strategies might
have on net interest income. Both current period maturity and repricing
information and projected balance sheet strategies are used to simulate rate
sensitivity. The lag effect of consumer deposit rates, determined through
historical analysis and forecasting techniques, is also modeled. These
simulations show that an immediate and sustained 100 basis point change in
interest rates would have less than a 1% impact on rate sensitive income over
the next twelve months, reflecting Signet's conservative balance sheet strategy.
ALCO operates under a policy designed to limit the impact of a sudden 100 basis
point change in interest rates to no more than a 5% change in net income over a
twelve month period.
Asset liquidity is generally provided by interest bearing deposits
with other banks, Federal funds sold and securities purchased under resale
agreements, trading account securities, loans held for securitization, loans
held for sale and securities available for sale. This group of interest-earning
assets totaled $4.1 billion, or 41% of earning assets at September 30, 1995. The
loan portfolio is a secondary source of asset liquidity. Liability liquidity is
measured by the Company's ability to obtain funds at favorable rates and in
adequate amounts. Core deposits are the largest and most important funding
source. These deposits totaled 121% of total loans as of September 30, 1995.
Purchased funds consisted primarily of funds from local customers which are
considered to be less volatile than other purchased liabilities and repurchase
agreements. For the first nine months of 1995, cash and cash equivalents
decreased by $1.1 billion primarily as a result of a sharp decline in Federal
funds sold and securities purchased under resale agreements. Cash used by
operations was $547 million for this time period resulting mainly from the
increase in other assets. Cash used by investing activities amounted to $2.3
billion principally due to the increase in securities available for sale. Cash
provided by financing activities amounted to $1.7 billion principally related to
financing Capital One prior to the Spin-Off.
<PAGE>
Supplemental Financial Data
Signet Banking Corporation (Excluding Capital One)
On February 28, 1995, Signet Banking Corporation ("Signet") spun off
Capital One Financial Corporation ("Capital One"). The supplemental financial
data which follows portrays Signet's financial position and the results of
operations on a pro forma basis, for the periods prior to February 28, 1995.
Amounts related to Capital One were subtracted from the Signet totals and were
computed as follows: actual interest income, an allocation for funding (interest
expense) when Capital One operated as a division of Signet Bank/Virginia (prior
to November 22, 1994) and actual interest expense for the period thereafter, and
actual non-interest income and non-interest expense. Overhead expenses,
allocable to Capital One prior to November 22, 1994, were not subtracted since
the major portion of these predominantly fixed expenses remain with Signet Bank.
These expenses were added to non-inter est income to reflect the intercompany
allocation to Capital One.
Signet Banking Corporation (excluding Capital One)
Selected Quarterly Financial Information
(dollars in thousands - except per share)
<TABLE>
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
1995 1995 1995 1994 1994
<S> <C> <C> <C> <C> <C>
Earnings
Net interest income (taxable equivalent) $ 119,482 $ 120,401 $ 121,344 $ 99,009 $ 92,621
Net interest income 116,944 117,446 118,082 95,561 89,166
Net income 30,143 29,686 26,706 17,621 4,456
Net income excluding restructuring charges (1) 30,143 29,686 26,706 23,857 26,308
Per Common Share
Net income $ 0.50 $ 0.50 $ 0.45 $ 0.31 $ 0.07
Net income excluding restructuring charges (1) 0.50 0.50 0.45 0.42 0.45
Book value (2) 14.27 13.90 13.15 12.69 18.52
At Period-end
Earning assets $ 9,911,356 $ 9,514,318 $ 9,337,761 $ 8,824,793 $ 7,774,290
Loans (net of unearned income) 5,509,437 5,684,427 5,647,599 5,695,722 4,720,418
Core Deposits 7,173,040 7,106,437 7,113,166 7,164,587 7,239,642
Number of common stockholders 15,134 15,259 15,374 15,503 15,462
Full-time employees 3,900 3,743 3,759 3,723 4,154
Part-time employees 1,049 1,133 1,029 987 967
Ratios
Return on average assets 1.11 1.14 1.06 0.74 0.21%
Return on average common stockholders' equity (2) 14.51 15.00 14.34 8.61 2.13
Efficiency ratio excluding restructuring charges (3) 65.99 68.67 69.95 77.46 75.89
Net interest spread 4.32 4.50 4.83 4.07 4.26
Net yield margin 4.96 5.14 5.42 4.73 4.90
Total stockholders' equity to assets (2) 7.59 7.70 7.36 7.54 9.58
Average Shares Outstanding 60,145,919 59,668,541 59,142,042 58,927,134 57,898,078
Credit Quality Data
Non-performing assets $ 51,504 $ 57,447 $ 41,597 $ 48,536 $ 65,857
Accruing loans past due 90 days or more 66,232 54,538 42,919 40,572 45,080
Net charge-offs (4) 12,965 18,593 2,775 1,707 21,570
Allowance for loan losses to:
Non-performing loans 339.92 297.24 574.88 583.37 410.51%
Non-performing assets 251.77 237.60 364.76 313.18 238.16
Net loans 2.35 2.40 2.69 2.67 3.32
Non-performing assets to loans and
foreclosed properties 0.93 1.01 0.74 0.85 1.39
Net loan losses to average loans 0.89 1.27 0.19 0.14 1.92
</TABLE>
(1) The third and fourth quarters of 1994 included $33.6 million and $9.6
million of restructuring charges, respectively.
(2) Historically, Signet Banking Corporation ("SBK") allocated Division Equity
to Capital One Financial Corporation ("COF") for preparing financial
statements of COF. On September 30, 1994, SBK allocated $240,195 to COF. On
November 22, 1994, SBK actually transferred $357,825 to COF.
(3) The efficiency ratio has been adjusted to exclude restructuring charges,
foreclosed property expense and one-time spin-off expenses.
(4) The second quarter of 1995 and the third quarter of 1994 included
approximately $13.9 million and $20.6 million, respectively, of charge-offs
related to the sale of approximately $55.0 million and $101.5 million,
respectively, of real estate related loans for which there was sufficient
allowance.
<PAGE>
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
QUARTERLY AVERAGE BALANCE SHEET TREND
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
ASSETS
<S> <C> <C> <C> <C> <C>
Earning Assets
Interest bearing deposit with other banks $ 8,136 $ 22,799 $ 89,749 $ 247,233 $ 243,888
Federal funds sold and resale agreements 469,512 532,922 812,447 1,230,529 1,003,048
Trading account securities 464,254 553,080 418,011 309,084 257,789
Loans held for securitization 425,543 153,300 1,667
Loans held for sale 312,734 234,107 94,718 110,040 127,541
Securities available for sale 1,712,148 1,679,836 1,494,844 1,037,842 1,157,308
Investment securities - taxable 230,852 235,514 214,027 191,270 20,984
Investment securities - nontaxable 106,860 146,867 157,609 177,261 187,469
Loans (net of unearned income)
Consumer 2,182,724 2,349,345 2,505,854 1,913,217 1,464,321
Commercial 2,747,241 2,553,554 2,362,850 2,194,675 2,149,870
Real estate - construction 230,364 217,685 207,805 212,661 229,590
Real estate mortgage - commercial 423,622 480,112 520,340 524,541 564,423
Real estate mortgage - residential 241,066 236,107 204,888 154,567 89,412
Total Loans 5,825,017 5,836,803 5,801,737 4,999,661 4,497,616
Total earning assets 9,555,056 9,395,228 9,084,809 8,302,920 7,495,643
Non-rate related assets:
Cash and due from banks 533,901 509,633 503,217 485,718 500,352
Allowance for loan losses (133,144) (144,407) (151,757) (156,150) (170,879)
Premises and equipment (net) 174,691 164,536 160,217 184,648 186,738
Other assets 625,258 561,476 598,458 587,877 502,227
Total Assets $ 10,755,762 $ 10,486,466 $ 10,194,944 $ 9,405,013 $ 8,514,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Money market and interest checking $ 1,037,342 $ 1,031,701 $ 1,014,201 $ 1,027,081 $ 1,012,616
Money market savings 1,341,762 1,346,920 1,402,102 1,489,537 1,618,108
Savings accounts 1,315,832 1,255,593 1,188,584 1,138,532 1,042,726
Savings certificates 1,791,296 1,876,689 1,943,788 1,981,963 1,937,671
Large denomination certificates 100,367 92,660 123,864 126,316 100,199
Foreign 116,204 146,829 83,737 263,810
Total interest bearing deposits 5,702,803 5,750,392 5,756,276 6,027,239 5,711,320
Federal funds and repurchase agreements 2,201,617 1,950,959 1,512,558 269,945
Other short-term borrowings 30,098 195,275 294,721
Long-term borrowings 253,174 253,427 253,596 253,685 253,773
Total interest bearing liabilities 8,157,594 7,984,876 7,717,705 6,845,590 5,965,093
Non-interest bearing liabilities
Demand deposits 1,557,185 1,497,770 1,515,423 1,536,099 1,543,375
Other liabilities 216,792 210,092 206,520 211,256 174,840
Common stockholders' equity 824,191 793,728 755,296 812,068 830,773
Total Liabilities &
Stockholders' Equity $ 10,755,762 $ 10,486,466 $ 10,194,944 $ 9,405,013 $8,514,081
</TABLE>
<PAGE>
Signet Banking Corporation (excluding Capital One)
Quarterly Income Trend
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
Interest income:
<S> <C> <C> <C> <C> <C>
Loans, including fees:
Consumer $ 60,296 $ 62,068 $ 70,095 $ 46,254 $ 34,054
Commercial 53,703 50,358 46,365 42,337 40,539
Real estate - construction 6,080 5,628 5,152 5,203 5,298
Real estate - commercial mortgage 9,358 11,276 12,131 12,651 12,707
Real estate - residential mortgage 5,011 5,074 4,279 3,152 1,917
Total loans, including fees 134,448 134,404 138,022 109,597 94,515
Interest bearing deposits with other banks 127 358 1,316 3,067 2,851
Federal funds sold and resale agreements 7,166 8,232 12,029 17,053 11,602
Trading account securities 7,410 8,936 6,718 6,038 5,062
Loans held for securitization 11,561 6,420 73
Loans held for sale 7,785 5,858 1,479 1,864 2,270
Securities available for sale 31,963 31,342 26,512 15,928 15,949
Investment securities - taxable 4,190 4,257 3,811 3,302 311
Investment securities - nontaxable 2,093 2,928 3,139 3,560 3,756
Total interest income 206,743 202,735 193,099 160,409 136,316
Interest expense:
Money market and interest checking 6,794 6,939 6,141 6,124 5,842
Money market savings 11,873 11,704 11,958 10,954 10,918
Savings accounts 12,785 11,800 10,727 10,106 8,656
Savings certificates 22,070 20,747 17,147 19,514 16,468
Large denomination certificates 1,332 1,186 1,529 2,143 1,135
Foreign 1,721 2,235 1,253 3,393
Total interest on deposits 56,575 54,611 48,755 52,234 43,019
Securities sold under repurchase agreements 14,689 13,880 11,732
Federal funds purchased 14,211 12,266 7,294 3,213
Other short-term borrowings 413 2,762 4,896
Long-term borrowings 4,324 4,119 4,474 4,505 4,131
Total interest expense 89,799 85,289 75,017 64,848 47,150
Net interest income 116,944 117,446 118,082 95,561 89,166
Provision for loan losses 8,681 4,250 3,251 (3,133) (5,162)
Net interest income after provision for loan losses 108,263 113,196 114,831 98,694 94,328
Non-interest income:
Service charges on deposit accounts 17,732 17,212 16,471 16,104 16,234
Credit card servicing and service charge income 2,511 1,633 2,551 6,832 7,379
Trust income 6,430 5,212 4,892 5,025 4,747
Other 19,690 18,635 13,145 13,509 26,670
Non-interest operating income 46,363 42,692 37,059 41,470 55,030
Securities available for sale gains 166 244 102 220 140
Investment securities gains 565 3 255 47 22
Total non-interest income 47,094 42,939 37,416 41,737 55,192
Non-interest expense:
Salaries 45,792 43,668 42,638 43,962 48,078
Employee benefits 10,517 12,076 13,698 8,770 12,360
Occupancy 9,635 9,434 9,843 10,668 11,248
Supplies and equipment 9,384 8,715 8,558 9,108 8,019
External data processing services 6,868 6,748 6,210 7,024 8,236
Travel and communications 6,138 5,604 5,594 5,952 5,638
Restructuring charges 9,593 33,619
Foreclosed property - net 64 (556) 572 (1,888) 595
Other 21,109 25,755 24,265 24,325 18,470
Total non-interest expense 109,507 111,444 111,378 117,514 146,263
Income before income taxes (benefit) 45,850 44,691 40,869 22,917 3,257
Applicable income taxes (benefit) 15,707 15,005 14,163 5,296 (1,199)
Net income $ 30,143 $ 29,686 $ 26,706 $ 17,621 $ 4,456
</TABLE>
<PAGE>
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
STATEMENT OF CONSOLIDATED INCOME
(IN THOUSANDS)
Nine Months Ended
September 30
1995 1994
INTEREST INCOME:
Loans, including fees:
Consumer $192,459 $ 82,316
Commercial 150,426 120,858
Real estate - construction 16,860 15,774
Real estate - commercial mortgage 32,765 34,869
Real estate - residential mortgage 14,364 5,247
Total loans, including fees 406,874 259,064
Interest bearing deposits with other banks 1,801 8,374
Federal funds sold and resale agreements 27,427 25,226
Trading account securities 23,064 15,449
Loans held for securitization 18,054
Loans held for sale 15,122 11,146
Securities available for sale 89,817 56,185
Investment securities - taxable 12,258 1,003
Investment securities - nontaxable 8,160 12,283
Total interest income 602,577 388,730
INTEREST EXPENSE:
Money market and interest checking 19,874 16,999
Money market savings 35,535 33,617
Savings accounts 35,312 23,355
Savings certificates 59,964 46,838
Large denomination certificates 4,047 5,239
Foreign 5,209 1,029
Total interest on deposits 159,941 127,077
Securities sold under repurchase agreements 40,301
Federal funds purchased 33,771
Other short-term borrowings 3,175
Long-term borrowings 12,917 12,180
Total interest expense 250,105 139,257
Net interest income 352,472 249,473
Provision for loan losses 16,182 (13,096)
Net interest income after provision for loan losses 336,290 262,569
NON-INTEREST INCOME:
Service charges on deposit accounts 51,415 50,037
Credit card servicing and service charge income 6,695 20,002
Trust income 16,534 14,417
Other 51,470 69,279
Non-interest operating income 126,114 153,735
Securities available for sale gains 512 3,193
Investment securities gains 823 (1)
Total non-interest income 127,449 156,927
NON-INTEREST EXPENSE:
Salaries 132,098 142,254
Employee benefits 36,291 41,269
Occupancy 28,912 31,201
Supplies and equipment 26,657 24,937
External data processing services 19,826 20,636
Travel and communications 17,336 16,806
Restructuring charges 33,619
Foreclosed property - net 80 1,189
Other 71,129 58,884
Total non-interest expense 332,329 370,795
Income before income taxes 131,410 48,701
Applicable income taxes 44,875 10,479
Net income $ 86,535 $ 38,222
<PAGE>
Signet Banking Corporation (excluding Capital One)
Quarter-end Balance Sheet Trend
(in thousands)
<TABLE>
<CAPTION>
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 498,193 $ 529,205 $ 541,946 $ 437,867 $ 451,079
Interest bearing deposits with other banks 1,712 14,610 33,523 342,795 239,274
Federal funds sold and resale agreements 425,305 638,641 772,865 835,821 1,090,348
Trading account securities 464,950 439,737 490,266 353,040 279,245
Loans held for securitization 750,000 450,300 150,000
Loans held for sale 267,535 259,372 159,224 69,506 128,613
Securities available for sale 2,195,180 1,651,554 1,692,387 1,142,626 1,113,371
Investment securities 297,237 375,677 391,897 385,283 203,021
Loans (net of unearned income)
Consumer 1,776,434 2,116,882 2,229,957 2,384,178 1,618,995
Commercial 2,982,401 2,820,339 2,577,674 2,472,620 2,282,334
Real estate - construction 237,271 227,531 211,097 209,183 218,500
Real estate mortgage - commercial 406,102 433,701 505,717 526,956 532,391
Real estate mortgage - residential 248,145 224,433 225,477 191,508 133,084
Gross loans 5,650,353 5,822,886 5,749,922 5,784,445 4,785,304
Less: Unearned income (140,916) (138,459) (102,323) (88,723) (64,886)
Allowance for loan losses (129,672) (136,497) (151,729) (152,003) (156,843)
Net loans 5,379,765 5,547,930 5,495,870 5,543,719 4,563,575
Premises and equipment (net) 180,549 166,731 160,672 159,031 202,714
Interest receivable 98,000 90,190 75,082 83,942 70,484
Other assets 534,689 458,370 513,994 505,053 457,403
Total Assets $ 11,093,115 $ 10,622,317 $ 10,477,726 $ 9,858,683 $ 8,799,127
LIABILITIES
Non-interest bearing deposits $ 1,603,922 $ 1,647,309 $ 1,533,797 $ 1,537,702 $ 1,592,825
Interest bearing deposits:
Money market and interest checking 1,064,412 1,038,959 1,023,532 1,050,176 1,011,484
Money market savings 1,337,665 1,319,829 1,382,105 1,453,629 1,500,611
Savings accounts 1,338,824 1,291,289 1,224,393 1,170,990 1,095,370
Savings certificates 1,828,217 1,809,051 1,949,339 1,952,090 2,039,352
Large denomination certificates 99,890 99,020 100,987 168,853 216,428
Foreign 80,318 96,084 183,337 9,225 85,242
Total interest bearing deposits 5,749,326 5,654,232 5,863,693 5,804,963 5,948,487
Total deposits 7,353,248 7,301,541 7,397,490 7,342,665 7,541,312
Securities sold under repurchase agreements 1,153,479 1,229,433 1,202,629 875,458
Federal funds purchased 1,285,918 816,946 521,295 195,005
Other short-term borrowings 105,408 201,619
Long-term borrowings 253,129 253,222 253,550 253,641 253,729
Interest payable 23,455 18,030 26,047 21,814 28,036
Other liabilities 181,514 185,140 199,831 224,659 133,159
Total liabilities 10,250,743 9,804,312 9,706,250 9,114,861 7,956,236
STOCKHOLDERS' EQUITY
Common Stock 295,244 294,175 293,298 293,184 292,389
Capital Surplus 197,911 195,899 193,986 198,869 195,704
Retained Earnings 349,217 327,931 284,192 251,769 354,798
Total stockholders' equity 842,372 818,005 771,476 743,822 842,891
Total Liabilities and
Stockholders' Equity $ 11,093,115 $ 10,622,317 $ 10,477,726 $ 9,858,683 $ 8,799,127
</TABLE>
<PAGE>
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
MANAGED CONSUMER LOAN PORTFOLIO
(IN THOUSANDS
<TABLE>
<CAPTION>
Three Months Ended
SEPTEMBER 30 June 30 March 31 December 31 September 30
1995 1995 1995 1994 1994
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Student loans $ 645,145 $ 922,956 $ 889,679 $ 789,483 $ 657,822
Installment loans 730,186 651,052 634,387 408,033 251,955
Home equity loans 525,232 519,498 516,265 497,523 473,384
Credit card 195,115 160,381 366,453 122,284
Other loans 87,046 95,458 99,070 95,894 81,160
Sub-total average consumer loan portfolio 2,182,724 2,349,345 2,505,854 1,913,217 1,464,321
Consumer loans held for sale 163,082 133,163 1,131
Credit card loans held for securitization 120,652 150,003 1,667
Home equity loans held for securitization 4,891
Student loans held for securitization 300,000 3,297
Total average on-balance sheet portfolio 2,771,349 2,635,808 2,508,652 1,913,217 1,464,321
Securitized consumer loans 195,390 266,493 374,583 379,538 320,000
Less loans that may be sold to Capital One (374,960) (424,437) (537,726) (184,974)
Total average managed consumer loan portfolio $2,591,779 $2,477,864 $2,345,509 $2,107,781 $1,784,321
PERIOD-END BALANCES:
Student loans $ 675,348 $ 636,925 $ 906,271 $ 848,099 $ 764,505
Installment loans 753,631 693,517 577,330 577,105 282,769
Home equity loans 89,843 524,625 512,175 511,947 486,874
Credit card 197,419 167,792 136,782 339,270
Other loans 60,193 94,023 97,399 107,757 84,847
Sub-total period-end consumer loan portfolio 1,776,434 2,116,882 2,229,957 2,384,178 1,618,995
Consumer loans held for sale 165,205 157,289 101,857
Credit card loans held for securitization 150,300 150,000
Home equity loans held for securitization 450,000
Student loans held for securitization 300,000 300,000
Total period-end on-balance sheet portfolio 2,691,639 2,724,471 2,481,814 2,384,178 1,618,995
Securitized consumer loans 290,833 213,331 320,833 428,333 320,000
Less loans that may be sold to Capital One (318,160) (398,007) (425,988) (517,295)
Total period-end managed consumer loan portfolio $2,664,312 $2,539,795 $2,376,659 $2,295,216 $1,938,995
</TABLE>
Note: On March 31, 1995, Signet transferred $110 million of credit card loans
to Capital One in accordance with previously agreed upon terms of the
spin-off. On September 13, 1995, Signet securitized $185 million of credit
card loans.
<PAGE>
SIGNET BANKING CORPORATION (EXCLUDING CAPITAL ONE)
STATEMENT OF CHANGES IN ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $136,497 $180,248 $151,729 $152,003 $189,797
Additions to allowance charged to expense 8,681 (5,162) 4,250 16,182 (13,096)
Transfer to loans held for securitization/sale (2,542) (889) (4,181)
Addition arising from acquisition 3,327 3,327
Loans charged off:
Consumer * 9,354 218 5,744 19,120 872
Commercial ** 77 626 1,413 1,918 8,686
Real estate - construction 683 8,831 389 1,080 8,831
Real estate - mortgage ** 4,325 19,335 13,343 18,572 20,209
Total loans charged off 14,439 29,010 20,889 40,690 38,598
Recoveries of loans previously charged off:
Consumer 402 390 315 1,055 887
Commercial 758 737 1,056 3,800 5,355
Real estate - construction 131 3,637 833 1,201 4,746
Real estate - mortgage ** 184 2,676 92 302 4,425
Total recoveries 1,475 7,440 2,296 6,358 15,413
Net loans charged off 12,964 21,570 18,593 34,332 23,185
Balance at end of period $129,672 $156,843 $136,497 $129,672 $156,843
Net loan losses (annualized) as a percentage
of average loans:
Consumer 1.64% (0.05)% 0.92% 1.03% N/M
Commercial (0.10) (0.02) 0.06 (0.10) 0.21%
Real estate 2.10 9.89 5.49 2.63 2.90
Total 0.89% 1.92% 1.27% 0.79% 0.70%
Allowance for loan losses to net loans at end of period 2.40% 2.35% 3.32%
*Consumer includes loan-by-check charge-offs
as noted below:
Loan-by-check risk tests $ 5,763 $ 2,151 $ 7,937
Other loan-by-check 880 $ 18 777 1,874 $ 37
Total loan-by-check $ 6,643 $ 18 $ 2,928 $ 9,811 $ 37
Net loan losses (annualized) as a percentage
of average loans-by-check:
Loan-by-check risk tests 11.23% 3.83% 4.79%
Other loan-by-check 1.27 0.14% 1.70 1.39 0.27%
Total loan-by-check 5.52% 0.14% 2.87% 3.27% 0.27%
</TABLE>
**Real estate - mortgage includes real estate - commercial mortgage and real
estate - residential mortgage. Real estate - residential mortgage charge-offs
and recoveries were not significant for the periods presented. Charge-offs
related to the loan sale in the second quarter of 1995 were $13,897, of which
$12,594 were real estate mortgage and $1,303 were commercial. Charge-offs
related to the loan sale in the third quarter of 1994 were $21,012, of which
$16,494 were real estate - mortgage and $4,518 were real estate -
construction.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNET BANKING CORPORATION
(Registrant)
Date: November 7, 1995 /s/ WALLACE B. MILLNER III
Wallace B. Millner III
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 7, 1995 /s/ W. H. CATLETT, JR.
W. H. Catlett, Jr.
Executive Vice President and
Controller
(Principal Accounting Officer)
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands - except per share)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Common and common equivalent:
Average shares outstanding 58,923,625 57,401,869 58,752,290 56,956,229
Dilutive stock options - based on the treasury
stock method using average market price 1,171,588 496,209 900,173 537,132
Shares used 60,095,213 57,898,078 59,652,463 57,493,361
Net income applicable to Common Stock $ 30,143 $ 3,462 $ 102,054 $ 106,960
Per share amount $ 0.50 $ 0.05 $ 1.71 $ 1.86
Assuming full dilution:
Average shares outstanding 58,923,625 57,401,869 58,752,290 56,956,229
Dilutive stock options - based on the treasury
stock method using the period end market
price, if higher than the average market price 1,222,294 496,209 938,444 547,627
Shares used 60,145,919 57,898,078 59,690,734 57,503,856
Net income applicable to Common Stock $ 30,143 $ 3,462 $ 102,054 $ 106,960
Per share amount $ 0.50 $ 0.05 $ 1.71 $ 1.86
</TABLE>
The calculations of common and common equivalent earnings per share and fully
diluted earnings per share are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although both are not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because there is dilution of less than 3%.
The Registrant has elected to show fully diluted earnings per share in its
financial statements.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 498,193
<INT-BEARING-DEPOSITS> 1,712
<FED-FUNDS-SOLD> 425,305
<TRADING-ASSETS> 464,950
<INVESTMENTS-HELD-FOR-SALE> 267,535
<INVESTMENTS-CARRYING> 297,237
<INVESTMENTS-MARKET> 303,332
<LOANS> 5,650,353
<ALLOWANCE> 129,672
<TOTAL-ASSETS> 11,093,115
<DEPOSITS> 7,353,248
<SHORT-TERM> 2,439,397
<LIABILITIES-OTHER> 204,969
<LONG-TERM> 253,129
<COMMON> 295,244
0
0
<OTHER-SE> 547,128
<TOTAL-LIABILITIES-AND-EQUITY> 11,093,115
<INTEREST-LOAN> 454,413
<INTEREST-INVEST> 20,553
<INTEREST-OTHER> 184,044
<INTEREST-TOTAL> 659,010
<INTEREST-DEPOSIT> 166,112
<INTEREST-EXPENSE> 281,371
<INTEREST-INCOME-NET> 377,639
<LOAN-LOSSES> 20,111
<SECURITIES-GAINS> 1,335
<EXPENSE-OTHER> 411,877
<INCOME-PRETAX> 156,799
<INCOME-PRE-EXTRAORDINARY> 156,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,054
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 5.18
<LOANS-NON> 51,504
<LOANS-PAST> 66,232
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 220,519
<CHARGE-OFFS> 45,788
<RECOVERIES> 8,266
<ALLOWANCE-CLOSE> 129,672
<ALLOWANCE-DOMESTIC> 129,672
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,842
</TABLE>
